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Roles of the President’s White House economic advisors (updated)

(This is a minor update of a post I wrote six weeks ago when Dr. Christina Romer’s departure was announced. I have updated this version to reflect the recent announcement of Dr. Larry Summers’ departure at the end of this year.)

The President’s Budget Director Peter Orszag left the Administration in late July. Dr. Christina Romer, Chair of the Council of Economic Advisers, returned to California a few weeks ago. Now Dr. Larry Summers, Assistant to the President and Director of the National Economic Council, has announced that he will leave the Obama Administration near the end of this year.

This means that three of the four top economic slots in the Obama Administration will turn over by the end of 2010.

We know that Jack Lew is the President’s nominee to replace Dr. Orszag at OMB, and I hope the Senate soon confirms him. The President recently promoted CEA member Austan Goolsbee to Chairman. Of the core four only Treasury Secretary Tim Geithner remains.

I think I can add a little value by describing the different positions that make up the President’s economic team, and in particular by explaining the roles of the heads of the National Economic Council and the Council of Economic Advisers. Dr. Summers will run the NEC for a few more months, while Dr. Romer was and Dr. Goolsbee now is the CEA Chair.

White House staff

Let’s begin with some formal organization that is broader than just the economic team. Within the Executive Branch there is a bureaucratic structure called the White House Office (WHO) and another called the Executive Office of the President (EOP). The White House Office is a subset of the EOP. Most of the names you know and the people you see on TV and in the press labeled as “White House staff” work in the White House Office:

Chief of Staff Rahm Emanuel and his two Deputy Chiefs of Staff Jim Messina and Mona Sutphen;

Each of these senior White House staffers reports to the President, and each has a title in the form of Assistant to the President for X. Rahm Emanuel is Assistant to the President and Chief of Staff. Phil Schiliro is Assistant to the President for Legislative Affairs. Larry Summers is Assistant to the President and Director, National Economic Council.

Each Assistant to the President (AP) has a staff of 1-4 Deputies, up to about eight Specials, and also junior staff. The Deputies are formally Deputy Assistants to the President, and the Specials are Special Assistants to the President. Technically, each reports “to the President,” but each does so through their respective AP.

Each AP has an office in the West Wing of the White House where the Oval Office is located. Generally, proximity to the President correlates with power.

Now let’s move outside the bureaucratic structure of the White House Office. The Executive Office of the President (EOP) includes the White House Office. It also includes two large organizations, the Office of Management and Budget and the US Trade Representative, and several smaller ones, including the statutorily created Council of Economic Advisers, the Council on Environmental Quality, and the Office of National Drug Control Policy. The OMB Director and CEA Chair have offices in the Eisenhower Executive Office Building with many other White House staff, and are informally considered “White House staff.” Importantly, these two attend the daily White House senior staff meetings, which thus makes them a part of the President’s core team just like the head of legislative affairs, the senior advisors, the communications director and press secretary, and the heads of the policy councils. If you want to get formal and technical, the OMB Director and CEA Chair are “EOP staff,” not “White House staff,” but in the real world there is no practical difference, and you should think of them as White House advisors to the President.

The USTR is across the street and has a little more distance from the President and the core team. Also, he or she is often jetting around the world, so the USTR often plays in his or her trade sandbox and is slightly removed from other, non-trade, issues.

The President’s economic team

The formal roles of the economic team members remain roughly constant from one Administration to the next, but the informal roles depend on the President, his management style, and the people on his team.

Director of the National Economic Council (NEC) – Now held by Dr. Larry Summers. The NEC Director’s job is to coordinate economic policy for the President.

Deputy Chief of Staff for Policy – This is now Mona Sutphen. The DCOS’ involvement in economic policy is, I think, very particular to any given White House. In the Bush 43 White House, the DCOS was heavily involved in all policy areas, including economic policy. This person is not only close attuned to the needs of the President and the Chief of Staff, but he or she has “visibility” into other policy areas as well and a better view of the macro policy picture than some members of the economic team. While the DCOS may be less of an economic specialist than most other members of the economic team, he or she is usually “wicked smart.” The DCOS and NEC Director are White House staff and therefore are not Senate-confirmed. Every other position listed below is subject to Senate confirmation.

Chair of the Council of Economic Advisers (CEA) – Until about September 1, this was Dr. Christina Romer. It is now Dr. Austan Goolsbee. The CEA Chair is generally the chief economist in the White House and almost always comes from an academic background.

Director, Office of Management and Budget (OMB) – Dr. Peter Orszag had this job until last July. Jack Lew is the President’s nominee to replace Dr. Orszag. A Member of the Cabinet, the OMB Director develops, implements, and manages the budget for the President. He or she also is the senior management officer within the executive branch, supervising the regulatory process and other management oversight. Imagine trying to manage implementation of a $2 trillion budget.

Secretary of the Treasury – Tim Geithner has this role. The Secretary of the Treasury is generally considered the President’s chief economic spokesman and often is considered the President’s senior economic advisor. The reality depends on the specific issues and the people involved. The Secretary of the Treasury is the primary face of the Administration on the economy and economic policy, and is usually a major power player within the Administration on economic policy, if not the principal player below the President. Formally his turf is narrower than most foreign finance ministers, who usually exercise OMB’s budget function as well. But his policy domain includes taxes and debt management, domestic and international finance, going after terrorist financing, and the U.S. dollar; he often plays a role in many other areas as well. The Secretary of the Treasury is usually particularly highly visible in international economic policy and interactions with financial markets and institutions.

Secretary of Commerce – This is now held by Gary Locke. Generally considered the next most important economic Cabinet position, Commerce is sometime thought of as the “industry and trade” slot. During the financial crisis, President Bush had Secretary of Treasury Hank Paulson working on financial institutions and markets, and he had Commerce Secretary Carlos Gutierrez as his lead negotiator on auto industry issues. That’s a traditional sectoral division of labor. Less well known is that Commerce also handles things like technology and telecommunications policy, meteorology (through NOAA, the National Oceanographic and Atmospheric Administration), and the Census, along with a bunch of other stuff.

U.S. Trade Representative (USTR) – Now held by Ron Kirk. USTR is the President�s lead trade negotiator.

The Secretaries of Labor, Energy, Health and Human Services, Agriculture, Transportation, Housing and Urban Development, and the head of the Environmental Protection Agency each handle sectors of the economy with significant economic impact.

White House policy councils

The policy councils are organizational structures centered in the White House that the President uses to help him make policy decisions. The National Security Council was the original policy council, formed by President Truman in 1947. Presidents Johnson and Nixon had domestic policy staffs, which turned into the Office of Policy Development in the White House. President Clinton formalized the creation of a separate National Economic Council and a Domestic Policy Council, making three policy council staffs. President Bush (43) created a fourth, the Homeland Security Council, which has since been folded back into the National Security Council.

Each council is chaired by the President and consists of Cabinet members and, in some cases, White House staff. Everyone listed below on the economic team is a member of the National Economic Council, and there’s an NEC staff of maybe 20ish professionals headed by Larry Summers. While formally the term National Economic Council refers to the set of principals (Cabinet officials and Assistants to the President) who comprise the council, colloquially the term NEC usually refers to the head of the Council (Larry Summers) and his or her staff.

The policy councils divide up all of policy – every policy issue “belongs” to a policy council. Any disputes about which council owns an issue are resolved by the Chief of Staff. The respective policy council staff coordinate that policy issue for the President. The word coordinate is carefully chosen – it does not mean “run” or “decide” or “implement.”

I used to describe it to new NEC staff like this:

A big part of our job is to be the official and definitive source within the Administration for the answer to the question, “What is the President’s policy on X?” where X is anything have to do with economic policy. That can be simple, like “What is the President’s policy on extending the capital gains tax rate?” Or it can be far more complex, like “What is the President’s policy on Senator Grassley’s amendment to tighten the three-entity rule in calculating income limits on certain farm subsidy payments?”

Part of our job is to know and explain the answer to every one of those policy questions, but it’s not our job to decide the President’s policy. Our job is instead to:

figure out which policy questions need a Presidential decision;

get him the information he needs to make a decision, and make sure it is accurate, complete, useful, and well-presented;

make sure he has maximum flexibility and as wide a range of options as possible, and that he understands the merits of the various options;

make sure he gets recommendations from his advisors, especially when they disagree; and

make sure we get a decision from him in a timely fashion.

Once we get a decision, it is our job to work with the rest of the President’s team in the White House and the Cabinet to make sure that decision is faithfully implemented and accurately and convincingly communicated. Others take the lead on those tasks, while we help them understand the President’s policy so they can do their jobs well.

NEC, CEA, and the policy process

It’s easy to confuse the very different roles of the NEC and the CEA.

The NEC Director (Summers) runs the economic policy process. It’s a process management role. When an economic policy issue needs a Presidential decision, the Director of the NEC manages the process within the White House and the Executive Branch that ultimately results in a Presidential decision. Policy council staff run many meetings and conference calls.

The NEC Director generally has an advisor role and an honest broker role. The advisor role is the high visibility one that everyone thinks is fun: you get to tell the President what you think he should do on every economic policy decision he needs to make.

The honest broker role consumes much of the NEC Director’s time. Each week the NEC Director and his or her staff of about twenty run dozens of meetings and conference calls of senior Administration officials to discuss and debate policy questions, gather recommendations, and ultimately advise the President. In my view, the best NEC Directors were the ones who would not impose their own policy views on this decision-making process, but instead would let the 5-20 other senior advisors to the President slug it out. The NEC Director would make sure the debates were informed by accurate information, solid policy and legal analysis, and rigorous logic and strategy. If a Cabinet Secretary or a senior White House staffer thinks that the NEC Director is going to prevent the President from hearing his or her advice, or that the NEC Director has his thumb on the decision-making scale, then that Cabinet official or White House staffer will often seek a back channel to bypass the decision-making process and provide unfiltered ex parte input to the President. The President has to deal with so many issues and so many decisions that if this NEC-led process breaks down, the wheels eventually come off.

In addition to whatever personal skills and abilities he or she brings to the job, most of the NEC Director’s power comes from his or her proximity to the President (physically, bureaucratically, and sometimes personally), from the breadth of his turf, which covers all economic policy, and most importantly from the reality that he or she runs the meetings and controls the paper. If the NEC Chair is effective and perceived as fair by other members of the President’s economic team, he also gains power from other senior advisors who want to help the NEC policy process succeed, even when they sometimes disagree with the President’s decisions.

The CEA Chair (Goolsbee) is the leader of a team of three Members of the Council of Economic Advisers. One CEA chair described CEA’s role as an internal economics consulting shop within the White House. The CEA Members all have economics PhDs and always come from an academic background, as do most of their senior staff economists. The senior staff economists generally take a one year leave of absence from their academic positions at universities. Junior staff economists are often non-tenured young academics or newly-minted PhDs. Some of the staff economists are detailed from other government agencies.

The CEA chair and staff manage all the economic data statistics for the President and prepare memos for him which explain the data. They analyze the economics of policy options, help design those options, and help critique other options. They spend a lot of time explaining economics and educating the President, other members of the economic team, other Presidential advisors, and the public about the basic economic facts and logic that underlie every policy question.

Therefore NEC does economic policy and decision-making, and CEA does economics. They’re different. CEA staff apply economic theories and data to economic policy, while NEC staff operate at the intersection of economics, policy design, the law, communications, politics, strategy, and the practical aspects and constraints of legislating and managing a bureaucracy.

Simple example: Should the President support a $1 gas tax increase?

This is not just an economic issue. There are effects on energy policy, on environmental policy, on transportation policy, and on the budget. There are legal issues, tax policy and administration issues, and effects on State and local governments. There are political constraints, vote-counting limitations, and interest group pressures and counterpressures. There are communications and electoral effects. For this supposedly simple yes/no question, let’s look at everyone within the Executive Branch who has a legitimate claim to providing advice to the President.

NEC would host the meetings.

CEA would attend and explain the economics of a gas tax increase – what would happen to fuel consumption, how would supply and demand shift, what would be the effect on driving and on oil imports. CEA would often tap into other expert economists inside and outside government for this information and analysis.

Treasury would attend because it’s a tax issue. They would be the lead in expressing views on the tax policy, design, and administration issues, as well as on the broader economic effects.

OMB would attend and be happy that the deficit would be lower. In an R Administration, OMB would sometimes oppose this policy because of the tax increase. But then somebody (probably Transportation or EPA) would argue we should spend the money and OMB would push back hard. OMB would also explain how gas taxes interact with the Highway Trust Fund.

Commerce would attend because of the broad economic impact across a range of industries.

Transportation would attend because it involves, duh, transportation.

EPA would attend and be excited that emissions would be lower. They would also snipe with Transportation over who had jurisdiction.

Energy would attend because it’s an energy issue, even though the Department of Energy really doesn’t do fuel taxes or vehicles.

Interior might want in because they do oil and gas production.

Agriculture would want to be included because of the significant effects on farmers, both for their farm equipment and the cost of shipping their goods.

Since this is principally a domestic economic issue, you probably don’t need State or USTR there.

In the Bush Administration, we would also include the Chief of Staff or someone from his office, White House Counsel (always good to have a lawyer in the room), White House legislative affairs (to tell us where the votes were, which Member would scream loudest, whether we had a chance of enacting it, and if so, how best to do it); White House political affairs (usually to discuss expected support and opposition from outside interest, far more than the raw politics of the issue), White House Communications and the Press Secretary, and someone from the VP’s staff. For a gas tax increase we’d also include the head of the White House Council on Environmental Quality.

If you have two from NEC (running the meeting) and the Chief’s office, and only one from each other shop (don’t forget the other senior White House Advisors listed above), that’s at least 18 people in the room. At least. Each has a legitimate claim to be there, and each has a view on whether the President should support a $1 gas tax increase.

I would guess that in the Obama White House they would also include Carol Browner, who has a new role as an Assistant to the President for Energy & Environment Issues (one of the new czars), as well as Valerie Jarrett, who among other things handles State and local issues for the President. If the Feds raise gas taxes, that makes it harder for the States to do the same.

On a straightforward question like a gas tax increase for which the substantive analysis is easy, there would probably be three meetings: one of mid-level White House and Agency staff chaired by the NEC Deputy or the NEC Special who handles energy issues, a principals meeting of Cabinet-level officials and senior White House advisors chaired by the NEC Director, and then a meeting with the President. I’d guess that maybe 200-300 man-hours (of very senior people) would precede a 45-minute decision meeting with the President.

Can it be a smaller meeting? Absolutely, and sometimes it is. You can always have fewer people involved, but at a minimum it’s important that the President understand all the dimensions of the decision. Of course, if you cut people out, especially from access to the President, it’s harder to get them to play as part of the President’s team.

NEC’s primary role (Summers) is to manage this circus for issues within his broad scope, keep it moving forward, and make sure the result of that process is useful to the President. CEA’s primary role (Romer) is to participate in that process as the lead economist.

I hope this explanation shows why CEA is almost always run by an academic PhD economist, and NEC is often run by someone without an academic economics background but instead with a policy or management background. Dr. Laura Tyson, Dr. Larry Lindsey, and Dr. Larry Summers are all PhD economists who ran the NEC. Bob Rubin, Gene Sperling, Steve Friedman, Al Hubbard and I were not PhDs or academic economists.

It can be particularly tricky when the head of NEC is a brilliant and well-regarded economist in his or her own right. Why should the President look to the CEA Chair for the formal economics, when he already has a brilliant economist as his NEC Director? Why does he even need the CEA Chair in the room? At the same time, are academic economic training and credentials the right skill set to manage a policy process, be an honest broker, and balance the economics with all the other factors that go into a Presidential decision?

I can see at least three obvious structural differences between the way the Obama economic team operates and the way we did during the Bush 43 tenure:

President Obama meets with a few of his principal economic advisors daily. Gut reaction: this is both a blessing and a curse. President Bush met with different configurations of his advisors as needed, rather than with the same group each morning. During normal times this averaged 2-3 meetings with the President per week. During the financial crisis it was almost every day, and sometimes more than once on a busy day.

The proliferation of White House czars means that economic policy processes and decision-making are more dispersed in the Obama White House. As best I can tell, NEC did not run the health policy process for President Obama in 2009-2010, nor the cap-and-trade policy process, as it did during the Bush era. You can decide whether that’s good or bad.

The current NEC Director has previously served as Treasury Secretary and is a leading academic economist in his own right and would be extremely well qualified to chair the CEA. This makes him at least a potential threat to both Secretary Geithner and the CEA Chair, and it means that everyone needs to work extra hard to make sure their roles are understood and that they can function together as a team.

I hope this contributes to a better understanding of both the roles the President’s White House economic advisors play and how the Presidential policymaking process works.